Greece effect may cause Euro area GDP growth to slow in Q3 despite otherwise firm recovery

Euro area GDP is expected to grow by 0.3% qoq in Q3 15, down from 0.4% in Q2. However, this apparent slowdown would be misleading. A contraction of 3.6% qoq (not annualised) is expected for Q3 in Greece (0.9% qoq in Q2). Despite Greece's small weighting, this pronounced fall is expected to have an effect on the overall euro area number. A headline drop should not be too concerning. 

Away from Greece, lower fuel prices and better job creation, which have continued to boost disposable household income as well as corporate profit margins, have spurred the domestic demand-led recovery. qoq GDP growth of 0.4% is expected in France, 0.3% in Italy and 0.4% in Germany. This is largely due to consumer demand. Euro area retail sales for September point to firm goods consumption in Q3. The report, published last week, shows that retail sales in volume terms decreased in September by 0.1% mom (2.9% yoy) after a flat reading in August, but the quarterly momentum remains solid (0.6% qoq). 
Combined with strong car registrations (2.4% qoq), the econometric models suggest that consumption should grow by 0.5% qoq in Q3. Although the breakdown by component will not be published, a small negative contribution is expected from net trade, offset by inventory rebuilding. 

"Looking ahead, we expect a return to 0.4% qoq growth in Q4, with consumption still the main driver", notes Societe Generale.